We Know Leadership Kumho Petrochemical Annual Report 2011
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01 We know leadership Kumho Petrochemical Annual Report 2011 Annual Report 2011 01 01 We Know Leadership 03 Narratives 21 Financial Highlights 22 Chairman’s Message 24 Presidents’ Message We know 28 Vision 2020 29 Leadership Knows... 02 leadership Management Review 43 Corporate Governance 44 Key Executives 46 Shareholder Value 49 Research & Business Development 54 Risk Management 03 Corporate Citizenship 57 Business Ethics 58 Environmental Management 60 Social Responsibility 04 Review of Operations 63 2011 Overview 64 Synthetic Rubbers 68 Synthetic Resins 72 Other Businesses 76 The Year Ahead 05 Financial Review 78 Independent Auditors’ Report 80 Consolidated Statements of Financial Position 82 Consolidated Statements of Income 83 Consolidated Statements of Comprehensive Income 84 Consolidated Statements of Changes in Equity 86 Consolidated Statements of Cash Flows 88 Independent Auditors’ Report 90 Separate Statements of Financial Position 92 Separate Statements of Income At Kumho Petrochemical Co., Ltd. (KKPC), we have grown along with our customers 93 Separate Statements of Comprehensive Income since our founding in 1970 by providing innovative petrochemical solutions and customer- 94 Separate Statements of Changes in Equity 96 Separate Statements of Cash Flows focused service. Today as a trusted partner and the world’s largest and most competitive producer of synthetic rubbers with world-class technology and products in the fields of phenol derivatives, synthetic resins, specialty chemicals, electronic materials, and 98 Corporate History building materials, we are now expanding into the fields of energy and advanced materials 100 Chemical Affiliates 101 Global Partnerships to drive future growth as we pursue our vision of being the flagship of a global leading 102 Global Network chemical group. Annual Report 2011 02 Kumho Petrochemical Annual Report 2011 03 In our 2010 annual report entitled “Great Expectations”, we shared the reasons why we expected 2011 to be an even better year than our record-breaking 2010 performance. And we proved it by delivering our best 01 performance to date by a large margin. The global economy is becoming more organically We know connected, and volatility and uncertainty are greater than ever before. In 2011, sovereign credit rating downgrades in the United States and major countries leadership across Europe elevated that uncertainty to a new level, chilling already weak consumer confidence and putting a damper on economic recovery. In developed markets, 03 Narratives 21 Financial Highlights growth continued to be slow, while even developing 22 Chairman’s Message markets experienced notably slower growth. 24 Presidents’ Message 28 Vision 2020 29 Leadership Knows... In the midst of this bleak news, the aggressive investments we have made in capacity expansion over the past few years began to bear fruit one-by-one, making us the world’s undisputed largest producer of synthetic rubbers in terms of production capacity. The timing was perfect as rising demand from the downstream automobile and tire industries dovetailed with our expanded productivity, producing greater growth and profits. Organizationally, we focused on strengthening our managerial independence from the Kumho Asiana Group and consolidated our core capabilities as we laid a firm foundation for our emergence as a global leading chemical group. We also used our enhanced cash generation abilities to steadily reduce debt and take our financial soundness to a higher level. Kumho Petrochemical Annual Report 2011 04 From a growth perspective, our sales rose 30.3% to 05 From a profitability perspective, our higher operating a record KRW 6,457 billion in 2011, far outpacing the margin boosted operating income by 47.5% to a new previous year. high of KRW 842 billion. Sales Revenue In KRW Billions Operating Income In KRW Billions 2010 2010 4,957 571 2011 2011 6,457 842 Sales Revenue Growth Operating Income Growth + 30.3% + 47. 5% Kumho Petrochemical Annual Report 2011 06 From a corporate value perspective, a rapid re- 07 From a financial soundness perspective, debt declined evaluation of our intrinsic value by the market helped and equity rose as our debt-to-equity ratio fell 158 our market cap grow 119.7% in 2011 to KRW 5,224 percentage points to 203%. billion at year-end. Market Capitalization In KRW Billions Debt-to-Equity Ratio 2010 2010 2,378 361% 2011 2011 5,224 203% Market Capitalization Growth Debt-to-Equity Ratio Change +119.7 % -158 pp Kumho Petrochemical Annual Report 2011 08 From a shareholder value perspective, we declared a 09 So, what enabled this amazing performance? cash dividend of KRW 2,000-per-share for a face-value yield of 40%, 20 percentage points higher than the Was it the world’s top production capacity and previous year. market leadership in synthetic rubbers? Superior product competitiveness? A focus on the customer? A favorable market environment? Enhanced financial soundness? Resolved uncertainty? Of course, all of these things have laid the foundation for today’s KKPC. Dividend But even with all these positives, there’s one thing that without which this remarkable growth would have been impossible. 2010 That one, indispensible thing is our passionate, united, and dedicated employees. It’s been said that 20% without great people, it’s impossible to achieve great things. Sometimes the things that you can’t see are a greater force for change and growth than the things 2011 you can. That’s because every miracle ultimately starts 40% in the heart. Dividend Change + 20 pp Kumho Petrochemical Annual Report 2011 10 Customer-Centric Management Every customer has unique needs. That’s where everything we do starts. There’s no one-size-fits-all solution because the success of each project or business is directly impacted by different requirements and circumstances. That’s why building a relationship of trust with customers is our first rule in business. 12 Long-Term Perspective Only people who know where they’re going can focus on how they’re going to get there. For us, leadership isn’t about coercive management. It’s about sharing a vision and helping others achieve it by themselves. Continuous Improvement We’re fired up about finding ways to make KKPC more efficient and effective. Continuous growth isn’t just something we talk about. It’s about everything we do. Entrepreneurial Spirit Everybody asks why I enjoy my job so much. And I always give the same answer. It’s because I have a great team to work with on challenging things, and I’m immersed in a work environment that fosters professional growth. Ceaseless Innovation Is innovation only for cutting- edge high-tech businesses? Absolutely not. I think that the petrochemical sector is where innovation is most needed. The reason is because it takes ceaseless innovation to produce the tens of different raw materials that are converted through special processes into completely different substances, which are then used True Leadership We’re not satisfied with simply being as materials in other industries. the world leader in synthetic rubbers. Our goal is to be No. 1 in every product and every market. That’s how we will become an industry-leading company in the truest sense. Balanced Growth Our strategic goal at KKPC is to maintain the balance between two priorities— generating greater short-term profits for shareholders while steadily expanding investment in the future. These strategic action principles guide us at every stage, from managing capital and selling non-core assets, to deciding how our surplus earnings are allocated, enhancing our capabilities in our core businesses. 21 Financial Highlights In KRW Billions 2011 2010 Income Statements Sales 6,457.4 4,957.0 Operating Income 842.2 571.0 Income before Income Tax 758.4 483.2 Net Income 505.6 316.0 Balance Sheets Total Assets 4,714.2 4,120.9 Total Liabilities 3,157.2 3,227.8 Total Equity 1,557.1 893.1 Net Financing Cost 156.6 126.8 Key Figures Operating Margin 13.0% 11.5% Debt-to-Equity Ratio 202.8% 361.4% Earnings per Share in KRW 24,723 15,775 Return on Equity 41.3% 44.9% Interest Coverage Ratio 6.01x 3.96x Dividend per Ordinary Share in KRW 2,000 1,000 Capital Expenditures 277.2 191.2 Sales Operating Income Net Income In KRW Billions In KRW Billions In KRW Billions 6,457 842 506 4,957 571 316 2010 2011 2010 2011 2010 2011 Annual Report 2011 22 Chairman’s Message 23 Dear Valued Stakeholder, Chan-Koo Park Chairman & CEO Kumho Petrochemical It gives me great pleasure to announce that KKPC achieved the best business performance in its 41-year history in 2011. While we had a remarkable year for sales, operating income, market share, and other benchmarks, the transformation in the mindset and attitudes of our employees to reflect our growing leadership made the year even more meaningful. Over the past few years, we have learned many things and changed just as much. When we faced the biggest crisis of our history in 2009, the strong solidarity and unwavering determination of our employees enabled us to overcome those challenges and push forward. As we were emerging as the world’s largest synthetic rubbers producer, instead of conceit, there was a growing confidence that we could also become a global leader in other fields as well. Joined by the conviction that, rather than simply being “ordinary” like other companies, we should as a leader pursue excellence, these ideas began to take root in our corporate culture. Becoming a leading company is more than just coming up with innovative products and services. It also comes with big social responsibilities. As the scope and number of our stakeholder groups grows, that responsibility gets even bigger. We’re now past the time when we can succeed by just doing well ourselves.